Overhauling operations for T+1

Gresham Technologies is a UK-based software and services company offering real-time data integrity and control platforms. Gresham provides fintech solutions to major buy-side and sell-side firms such as ANZ, Blackrock, Jefferies, and M&G Investments. Founded in 1969, Gresham is publicly listed on the London Stock Exchange (LSE:GHT).

In an interview with The Financial Revolutionist, Julian Trostinsky, Head of Global Support Solutions at Gresham, outlines a major compliance deadline looming for buy- and sell-side firms in North America. A move to T+1 settlement rules in May will dramatically alter how firms handle the bulk of their operations—which, Trostinsky posits, requires automation-focused solutions such as the platforms Gresham offers. 

This interview has been edited for length and clarity.

The Financial Revolutionist: I’m curious how long Gresham has been strategizing about T+1 specifically, versus aiming to shorten clearance and settlement times in general.

Julian Trostinsky: Perhaps prior to getting into how long we've been working on T+1, we should give a history of how T+1 has developed. 

Sure.

Back in 1993, the financial services industry moved from T+5 to a T+3 settlement cycle. And the main logic behind it was to reduce systemic risk and improve the operation of the US clearance and settlement process. Then, at the end of 2017, the securities industry successfully transitioned from T+3 to T+2. And we've been operating on a T+2 basis since then, which means that trade allocations are typically carried out at the end of the trading day or the following day. 

Starting May 28, all of the firms trading across the US and Canadian capital markets will be required to settle securities transactions one day after they’re executed, and it doesn't matter where they are located. The industry working group has recommended a 7pm Eastern allocations timeline, with affirmations happening by 9pm Eastern. 

Where does Gresham fit in?

We as an organization looked at how we can help our clients as well as the industry. Gresham as an organization is all about automation, and also about quality of data. The way our system is designed, it can take data in real time and save data in batches, so organizations are in control in terms of how they load data and how they report data back out, which is a massive help to organizations when they need to meet these shortened compliance deadlines. 

How have capital markets actors reacted to the T+1 implementation deadline?

We conducted a survey in October last year that saw 45% of respondents being ready for T+1, which was pretty scary. Since that survey took place, the number has definitely changed; I would probably say it's somewhere around 65 to 70%. The key thing is that, no matter how you look at it, it’s about automation. You will most likely not be able to deliver what T+1 demands in a manual way: You will miss deadlines, and you will be charged some fines due to the fact that you’re missing those deadlines.

So do you anticipate some market actors failing to meet the deadline?

I would expect that to be the case. I mean, as recently as last week, we had a conversation with a prospect, and we mentioned T+1, and I wouldn't say that they acted surprised that it's coming, but they definitely acted as though they're not ready for it. 

The other thing we also need to be mindful of is the fact that the majority of the financial institutions affected by T+1 are global in nature. The fact that the US will implement T+1 will have a clear effect on APAC and European regions too. I would probably say that the APAC region will most likely be affected more than the US, because in the US, the formation process takes place before the settlement instruction is sent to the deposit. 

Meanwhile, in APAC markets, affirmations are generally embedded within the depository system itself, which also means that if a trade settles on Friday evening in the US, an affirmation needs to be done on a T+1 basis and can only be done by APAC representatives. You will need to either have a presence on Saturday, or deal with potential fines and other issues. The other thing that Friday trades pose is that you could potentially be dealing with a complete post-trade process yet unfavorable rates that could potentially be showing up in APAC regions, because the FX rates may be different than the latest rates available in the market.

What do the institutions that have yet to adopt T+1 capabilities have in common?

It starts with the fact that, if you compare what happened in 1993, when you went from T+5 to T+3, or even when we went to T+2, the volumes of data that were dealt with were significantly smaller than what the industry is dealing with right now. So the first issue that they have is the significance of volume and the number of trades and affirmation obligations that they need to perform on top of those records. The second issue is the legacy-based technology that is still being used by some of these financial institutions. And then finally, there is some level of panic, because the rug is being yanked from underneath them, and they’re forced to change quickly. 

Is it possible to overhaul operations in a three-month period before the deadline?

The biggest challenge is, let's say someone wakes up tomorrow and says, Oh my God, May 28 is right around the corner—I need to automate my processes, solutions such as Gresham’s will be able to deliver the results in that timeframe, but the question is whether or not this organization will have enough resources to be able to support that particular onboarding over a very short period of time. And that is where the challenge is. 

So I would say start tomorrow, if not today. Do not attempt to buy any more time, because I do not believe that the May 28 deadline will be extended in any way, shape, or form. Furthermore, I also believe that the US market isn't the end of T+1. I am 100% confident that the European Exchange Commission and the APAC region will move to T+1 as well. The European Exchange Commission has already put out a call to European organizations to closely monitor their colleagues in North America and determine whether or not there are true savings that can be associated with the move to T+1. If I were to guess, they will most likely move to T+1 sometime in 2025 or 2026.